ARHA Goes on Offense in Lawsuit

The ultimate fate of The Berg may rest with the judgment of one man totally removed from the anxiety of those personally affected. He's Judge Thomas Penfield Jackson, U.S. District Court, Washington, D.C.

A hearing will be held Feb. 25, before him concerning the suit by the Alexandria Residents Council (ARC) against the U.S. Department of Housing and Urban Development. His decision could kill the entire project.

At issue is whether a preliminary injunction should be issued to stop the redevelopment of the Samuel Madden Homes (Downtown) project, known as The Berg, until it is determined whether or not HUD followed proper procedures in approving a private developer for the site or whether ARC should have been given a new opportunity to be the developer.

"If he grants the injunction being sought by ARC it would stop us from applying for the necessary tax credits on the project and prevent us from moving forward for at least one year and maybe permanently," said A. Melvin Miller, chairman, Alexandria Redevelopment and Housing Authority (ARHA).

In order to prevent this from happening, ARHA, at their January 27 meeting, approved the hiring of an outside law firm to argue their case before Judge Jackson. The action was taken in collaboration with City Council, according to Miller.

"Even though ARHA is not named in the suit, we felt HUD was not focusing on what damage this injunction would be to us and the city. They are approaching it too much along procedural lines. One of the elements that impacts the judgment is whether an injunction would have an adverse effect on interested parties," Miller explained.

"ARHA, the city, and The Berg residents would all be severely impacted adversely if this injunction is granted," Miller said. "If there is no preliminary injunction HUD can move ahead and approve all the necessary actions to move the project forward."

MILLER'S DAMAGE assessment was buttressed by Alexandria City Manager Philip Sunderland who said, "We need to present the local issues at stake and particularly those impacting the residents (of The Berg)." "The court needs to hear the real facts. Usually, to grant such an injunction there has to be proof of irreparable harm and that just isn't the case here. I encouraged the hiring of outside counsel that had litigation experience," Sunderland said.

In order to accomplish its goal, ARHA hired the Washington, D.C. firm of Beveridge & Diamond, P.C. "We were looking for a firm that had done a lot of work in the District and had experience with this type of situation," Miller said.

"Our attorney, Michael Wiser and the city attorney, Ignacio Pessoa, have discussed the matter and have agreed on this firm," Miller confirmed.

At the core of the predicament is the necessity for ARHA to file for tax credits as part of The Berg project by March 14. In the suit there is a stipulation that HUD is not to approve anything before March 3. This presents a very tight window that could be slammed shut by a preliminary injunction.

IN ANNOUNCING their actions after an executive session, it was explained, "If this case doesn't move by March 14, it might impede us for at least a year or stop the project altogether. If we can't convince the judge to move ahead it will be very harmful."

Miller noted at the meeting, "We have moved 100 residents to other locations. Those that are scheduled to return to the new development couldn't get back. It would be very detrimental to them. And, we couldn't do anything with the boarded up properties without the necessary funds."

The absolute necessity of the tax credits was spelled out to the ARHA Board in a memo from ARHA executive Director, William M. Dearman, dated January 22. "Competitive low income housing tax credits (LIHTC) are a significant source of funds planned to be used for development of the 52 on-site and 48 scattered site replacement housing units ... they are anticipated to contribute approximately $10,000,000 for both projects," he noted.

Dearman went on to warn the Board, "As HUD approvals are necessary for these projects to move forward, the ARC litigation adds great uncertainty to whether tax credits can be obtained this year, and adds additional risk to pre-development investments in the projects made by ARHA and the development partners.

"Since competitive tax credits are awarded by Virginia only once a year, if the application or award of LIHTC are not possible due to complications related to the litigation, the on-site and off-site projects could be delayed at least another year."

MILLER EXPRESSED the concern that the chosen developer, Eakin/Youngentab Associates (EYA), could become frustrated with the delay and withdraw from the project altogether. Michael Wiser, ARHA's counsel, noted, "If the economy and the market change radically it could severely impact the project permanently. Plans are based on the market as it exists today."

In order to allow the LIHTC application process to move forward while the litigation is underway, Dearman urged the Board to allow staff to enter into a "separate fee-for-services agreement with EYA and the selected off-site developer for preparation of the applications.

"This appears to be the most feasible method to produce the LIHTC applications given the litigation, as it will allow the application processes to proceed while providing adequate time to negotiate comprehensive development agreements." The Board agreed and authorized the request.

The fee, estimated at approximately $25,000 per developer, will be deducted from the developer fees to be negotiated in the comprehensive development agreements. Dearman explained, "In the event the project cannot go forward, or if it goes forward with other developers, the fee will be retained by the developer."

If the LIHTC is approved the application fee will be absorbed in the developer fee, Miller assured. He clarified to the Board, "You are not eligible to apply for tax credits unless you have participated in three such programs in the past. We haven't. That's why we need a partner that qualifies."

COUPLED WITH THIS action, the ARHA Board approved Enterprize Homes, Inc., as the development partner for the three selected scattered sites at 1700 Braddock Road, 423 S. Reynolds St, and 325 S. Whiting St.

With an area office in Baltimore, Enterprize has done similar projects nationwide. It has experience with 20 HOPE VI endeavors in nine states, according to Connie Lenox, ARHA's administrative director of development. "They have an absolute proven track record with resident groups," Lenox assured.

"We went through a similar Request For Proposal process as we did in the selection process for the main site and we received three responses," she explained to the ARHA Board. "We have already developed the off-site design concept. The developer will be responsible for construction and working to get the tax credits."

Dearman, in a separate memo pertaining to the selection of the off-site developer, said, "It is expected the off-site development partner will be compensated with a developer fee, and possibly, a management fee."

It is also anticipated the partner will be paid a fee for preparing the necessary documentation for the tax credits. "This fee will be deducted from the developer fee on a predetermined schedule," Dearman noted in his memorandum.

The total developer fee paid by the project will be approximately 12 percent of the development budget which has not been fully developed, according to Dearman. However, "As ARHA will be in partnership with the selected developer, and ARHA will be sharing in the development work and associated risks, ARHA and the selected developer will negotiate an arrangement to split the developer fee..." he informed the Board.

In addition to Enterprize, bids were submitted by Franklin Captial Group and Mission First Development. The latter was eliminated because they had "significantly less experience and financial strength than the other two," Dearman reported. The selection committee made its determination based on ratings to six predetermined criteria and a comparative review interview.

ARHA BOARD member and President of ARC, Thomas "Pete" Jones, who surprised his colleagues at the November meeting by announcing the lawsuit, was not present Monday night due to illness. Neither were local lawyer, Paul Fiscella, or representatives of the Lawyers' Committee for Civil Rights Under Law, both representing ARC in their action against HUD.

LCCRUL lawyer, Matthew Clash-Drexler, when contacted Tuesday said, "ARC feels strongly that the motion should be granted, particularly, since we filed the action. Without it, ARC will forever lose its right to purchase the property. This is just one more road block being thrown up by ARHA and HUD to deny ARC that right."